How Can I Change My Mortgage Type?
Not happy with your mortgage anymore? It happens to a lot of people. There are a huge number of variables influencing financial markets. The beautiful interest rate you got last year may have risen. Your own financial situation may have improved or headed south. One solution is to change your mortgage type. But how can you do that?
Before going into the “how”, let’s take the look at the different types of mortgage and why you may wish to change your mortgage type.
There are several different types of mortgage loans available in Singapore. They include fixed interest rate loans, variable interest rate loans, loans with interest rates pegged to the Singapore Interbank Offered Rates (SIBOR) and loans with interest rates pegged to Swap Offer Rate (SOR). You probably learned about them when researching for your initial home loan.
If you are like most borrowers in Singapore, you probably have a variable interest rate loan. That’s what banks want their customers to take, for the simple reason that a constantly changing interest rate works more for their benefit than in their customers’ favour. Fixed interest rate and SIBOR-pegged loans are generally more desirable to borrowers because the rates are more stable.
You may want to increase or decrease the tenure of the loan. A long tenure of 35 years means lower monthly payment but a higher total payment. Conversely, a short tenure, say 15 years, translates to higher monthly payment but a lower total payment. If you are having trouble paying your monthly installment, then you may want to increase the tenure. If you want to become debt-free faster, you should look at decreasing the tenure.
Now let’s go the practicalities of changing your mortgage type. One solution is to refinance your mortgage.
Refinancing a home loan means taking out a new loan to pay off your existing loan. How does it solve your problem? Very simple. You get a new type of mortgage. If you had a variable interest loan, now you can have a fixed interest loan or a SIBOR-pegged loan. If your loan tenure was 35 years, now you can decrease it to a length of your choice. If you thought the interest rate you were paying was too high, now you can find a loan with a lower interest rate.
Banks will not allow you to take this option before the lock-in period expires, which is the first 2 – 3 years of your loan tenure. Ensure that this period has expired. Once you have decided to refinance your loan, inform the bank three months in advance. It’s not necessary that you refinance from the same lender, so start looking for a lender offering a better package. You should only decide on a new loan after comparing mortgage rates in Singapore .
The rest of the steps are like taking out a mortgage because it is a mortgage that replaces an existing mortgage. There will be issues to sort out like loan appraisal and closing fees. Once you are done, you will have new mortgage with a different interest rate, tenure and conditions.